Inventory

Question 1

What are the key assertions?

Answer 1

• Existence
• Valuation
• Completeness
• Rights & Obligations

Question 2

What are the sources of evidence?

Answer 2

• Aged Inventory Listing
• Inventory Assets
• Inventory Count Sheets
• Purchase Invoices
• Goods Received Notes
• Sales Invoices
• Goods Despatch Notes

Question 3

What are the test of controls?

Answer 3

• Observe the count to ensure that instructions are being followed. For example, no movements of inventory during the count, teams of two people performing the count and sections of inventory being tagged to prevent double counting.
• Damaged/obsolete items being separately identified so they can be valued appropriately.
• Inspect count sheets.
• Enquire of the department that the counting staff work in to ensure that they are not warehouse staff.

Question 4

What are the substantive procedures?

Answer 4

• Select a sample of items from the inventory count sheets and physically inspect the items in the warehouse - existence.
• Select a sample of physical items from the warehouse and trace to the inventory count sheets to ensure that they are recorded accurately - completeness.
• Inspect the inventory being counted for evidence of damage or obsolescence that may affect the net realisable value - valuation.